The regional airline industry is being roiled by a pilot shortage that results from simple math: the cost to complete flight-training programs is high, and the entry-level pay at these carriers is low. How the problem gets fixed—which largely means how the bill will be divided and how much trickles down to passengers—is one of the big questions confronting the entire U.S. airline industry. “So far, no one can figure out whose dime it’s going to be done on,” says Dan Akins, an airline consultant and principal with Flightpath Economics.
For years, the large network airlines have exploited the cost arbitrage between flying their own planes and the far-cheaper rates they could find in a competitive marketplace where regional airlines bid against each other for routes. Under what’s known as “capacity purchase agreements,” the mainline airlines handle ticket sales, scheduling, and jet fuel. The regional carriers staff and operate flights, benefiting from the guaranteed income specified by their contracts. If the regional players keep their costs low, profit margins can be decent.